Financial incentives are largely accepted as one of the primary motivators for increasing the performance of employees, but are it actually true that the larger the sum the more people are willing to do obtain it? Research out of Caltech seems to indicate that this is not really the case. After examining data from brain scans, the researchers posit that was actually happens is that once the prize becomes too large, people become more concerned about losing it. And since the more someone worries, the worse they perform, it follows that extravagant incentives can actually cause the opposite effect than what is intended.
A portion of the report’s conclusion reads: “As expected, the team found that performance improved as the incentives increased—but only when the cash reward amounts were at the low end of the spectrum. Once the rewards passed a certain threshold, which depended on the individual, performance began to fall off.”
In sum, the general conclusion of the report was that the greater the potential reward, the greater the fear of losing it. The effect being that during the time when employees are expected to best perform is the time when they psych themselves out and lose their ability to perform at their best. While this data may not affect many pay-for-performance plans, it is something to consider if employees are falling short of their goals in pursuit of an incentive.